Comment

Forget wind turbines – rare earth metals hold the key to Joe Biden’s green revolution

China still holds most of the cards when it comes to these lesser-known parts of the periodic table

If Joe Biden wins the White House in a few weeks’ time, the world’s tilt towards green energy will be unstoppable. The US will join Europe and China in having “net-zero” emissions targets – and investment in renewable energy will soar. Unfortunately, Mr Biden’s ambitious plans may be missing some of the elements they need to be a success.

Meeting these tough climate goals will be achieved by technological innovation – and America undoubtedly has the brain power to drive this. But the raw materials needed for this green revolution may be more difficult to come by than scientific talent. The most important raw materials in the hi-tech sector are currently rare-earth metals. Unfortunately for Mr Biden, China is now holding most of the cards when it comes to these lesser-known members of the periodic table.

These metals are used in everything from solar cells and wind turbines to electric car batteries. The 15 lanthanide elements – plus scandium and yttrium – are an integral part of many other modern products including lasers and MRI machines. As technology advances, their importance in manufacturing is growing significantly.

Seismic shift

The Trump administration has been a standard bearer for the US hydrocarbon industry for the last four years, but all that will change if the Democrats win next month. From his attempts to resuscitate America’s dying coal industry – to his encouragement of the old Republican mantra of “drill baby, drill” – Trump’s “anti-green” agenda was never hidden from view.

But a Biden win will turn US policy on its head. This seismic shift in energy policy direction towards a green future will significantly change global flows of capital. Trillions of dollars will flow into alternative energy projects. But one of the main problems for Mr Biden’s enormous shift in US energy policy remains China’s monopoly in the processing of these rare-earth metals.

China supplied 80pc of the rare earths imported by the US between 2014 and 2017 and is home to at least 85pc of the world’s capacity to process rare-earth ores into material manufacturers can use, according to research firm Adamas Intelligence.

National emergency

Donald Trump declared a week ago there was a national emergency in the mining industry because of the shortage of these metals, citing their military applications too. The declaration claimed it was “incentivising the domestic production of rare-earth minerals critical for military technologies while reducing American dependence on China”.

Rare-earth metals are not rare – it’s just that the extraction techniques are highly polluting. China invested heavily in processing plants in the past few decades and kept them running through the cycle – seen in the mining sector as strategic businesses. America’s last listed rare earths group, Molycorp, collapsed in 2015 under the weight of a massive pile of debt.

Now, as rare earths become strategically important in the technology battle with China, the US industry is reviving rapidly. The Mountain Pass Mine, an open pit site in California, once supplied most of the world’s rare-earth elements. It is still in operation, owned by a hedge fund, but a special acquisition vehicle (what we in the UK could call a cash shell) has been established to buy it and bring it back to market. The listing will be used to raise funds to take on China’s dominance.

Fortress Value Acquisition Corp (FVAC) was set up this year to buy the mine and float it on the New York Stock Exchange. The $500m (£387m) raised from the stock market listing will then be used to build the facilities that process its ore on site. Currently, although there are a few rare-earth mines in the US, they must send their ore for processing in China. This flotation will be a major step in America’s tech war with China. FVAC has even mooted the possibility it could build the magnets that are essential in electric car engines at the mountain site once established.

Securing supply

Another attempt to gain security of supply is by increasing recycling. In mid-September 2019, Apple said its new iPhones will use recycled rare-earth elements in a key component. They are used in its “taptic engine,” that provides variable vibrations on flat screens. However, Apple denied trade tensions were a factor in its decision.

Lisa Jackson, Apple’s vice president of environment, policy and social initiatives, said last year that Apple’s use of recycled rare earths was “not related” to trade tensions. “This is one of those happy coincidences where what is good for the planet is really good for business at the same time,” Ms Jackson said. “One of the things we talk about a lot internally, just in general, is how much more resilient this makes our supply chain.”

Despite these protestations, Apple’s board are probably fully aware of the political football that rare earths are about to become. So, recycling technology is also an area where we are likely to see substantial investment to guarantee future supplies. 

Rare earths are now as significant in Washington’s quest for technological supremacy over Beijing as any sanctions on technology leaders such as Huawei and SMIC. Right now, China is the leader in the race to develop the third generation of semiconductors that will drive the 5G world – and it has a near monopoly on the processing capacity of the metals needed in the components of the infrastructure of tomorrow.

Whoever wins the presidential election in three weeks’ time, these related policies on metals and microchips are guaranteed to remain largely unchanged. To ensure the US’s continued superiority in communications and weapons – as well as underpinning the greening of the country’s infrastructure – both are as important as each other.

The text of this article has been changed to reflect the fact that the rare earth recycling initiative, and Lisa Jackson's comments relating to them, were in September 2019 and not last month as was initially reported.

Garry White is chief investment commentator of wealth management company Charles Stanley